Payday consumers cash in under reform law, governor says

A state law that imposed new restrictions on “payday” lenders has saved consumers more than $20 million since it took effect in December 2005, Gov. Rod Blagojevich’s administration said Tuesday

Mike Ramsey

A state law that imposed new restrictions on “payday” lenders has saved consumers more than $20 million since it took effect in December 2005, Gov. Rod Blagojevich’s administration said Tuesday.

The purported savings in fees and interest charges were calculated by the Illinois Department of Financial and Professional Regulation, which compared the annual percentage rates (APRs) of payday loans issued in 2002 and those issued after the governor signed the Payday Loan Reform Act two years ago. The average APRs were 525 percent and 350 percent, respectively, during the two periods.

With the new protections, state regulators said, Illinois consumers took out 763,701 of the short-term loans — for a combined total of $267.9 million — from December 2005 through June 30 and paid an average finance charge of $15.36 per $100 borrowed. The new law caps the finance charge, including interest, at $15.50 per $100.

“It is clear that this law is working as intended,” Dean Martinez, director of the state Department of Financial and Professional Regulation, said in a written statement. “Thousands of Illinois families are better off because of this law and the enforcement of its provisions.”

The payday loan industry made dire predictions in 2005 that its businesses would close and thereby cut off loan opportunities to credit-challenged people. But Steve Brubaker, executive director of the Illinois Small Loan Association, offered generally positive remarks Tuesday in response to the state report.

“Some regulation is certainly good for the industry,” he said.

Brubaker said payday loan customers are saving money while loan companies have stayed viable by offering a variety of products, including longer-term “consumer installment” loans.

Blagojevich administration officials previously said lenders were steering customers to consumer-installment loans to avoid the new restrictions on payday loans. But Sue Hofer, a spokeswoman for the regulation agency, said the recent statistics suggest there is a stable trade in payday loan transactions.

With the 2005 law, regulators sought to curb excessive finance charges and prevent payday loans from being constantly rolled over. As he signed the measure, Blagojevich blasted payday loan companies and said they exploit working people, but he accepted thousands of dollars in campaign contributions from the industry.

The average payday loan from December 2005 through June 2007 was for $350.87, with a finance charge of about $54, the regulation agency said. The average term for a payday loan was 16 days.

Mike Ramsey can be reached at (312) 857-2323 or ghns-ramsey@sbcglobal.net.

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